Big money paid to top execs draws shareholders into debate over levels of proper payment

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In May, Sempra Energy became the first San Diego County public company whose shareholders have approved an annual advisory vote on executive compensation — known as “say on pay.”

The Sempra say-on-pay vote highlights the long-festering dissatisfaction over compensation for U.S. executives. Public anger reached a crescendo during the stock market collapse and federal bailouts in late 2008 and early 2009.

The outrage has led to political action. President Barack Obama appointed a “pay czar” to review compensation packages for companies that received federal bailout money, capping pay at some firms. And Congress included periodic say-on-pay votes at all public companies as part of pending financial reform legislation.

Sempra’s chief executive, Donald Felsinger, was the highest-paid executive in San Diego County for 2009, taking home $20.6 million in salary, bonus, perks, stock options and restricted stock.

But Felsinger’s pay in 2009 wasn’t the top concern of supporters of the say-on-pay proposal, according to proxy materials.

Instead, they pointed to the $35 million golden parachute that Felsinger stands to make if Sempra is ever sold. They raised concerns about his hefty retirement plan benefits and deferred compensation. And they questioned whether Sempra’s stock ownership guidelines give executives enough skin in the game to align them with interests of shareholders.

Sempra, however, said 85 percent of Felsinger’s pay is based on the company’s performance. Sempra’s total shareholder return — assuming reinvestment of dividends — totaled 36 percent last year, according to the company, higher than the 12 percent for the Standard & Poor’s Utilities Index and 27 percent gains for the overall S&P 500.

Sempra also described its earnings of $1.119 billion in 2009 as “solid.” The year before, the company earned $1.113 billion.

“From where we sit, making the compensation package incentive-based is putting the emphasis in the right area for increasing value to shareholders,” said Doug Kline, a Sempra spokesman.

For years, corporate boards have been trying to better link pay to executive performance, with mixed results.

“Nobody gave Jack Welch a hard time with all the money he made during his reign at GE because the shareholder value created at GE was tremendous,” said David DeBoskey, a professor at San Diego State University who studies executive compensation. “The real issue — and this is what has gotten everyone upset — is the fact that executives are being paid enormous salaries and bonuses in cash and stock, and they are not delivering the returns to shareholders.”

Executive pay consultants point out that much of the outrage stems from golden parachutes that some executives receive when leaving a company that performed poorly or failed. That must be changed, said Frank Glassner, chief executive of Veritas, an executive compensation advisory firm in San Francisco.

But he’s also concerned that the political rhetoric is drowning out more thoughtful discussion over executive pay.

“What seems to have become the focus of say on pay is not how we’re paying people, but how much we’re paying people,” he said. “The question of how much is really the wrong question. The right question is how should they be paid? What are the most effective performance measures?”